ENTERPRISE PERFORMANCE MANAGEMENT SYSTEMS
Difference between BI and EPM Software
Overview
The term Business Intelligence (BI) is often ambiguous. In popular contexts such as mainstream media, it can simply mean ‘knowing something about your business,’ but BI also refers to a category of software products that are used to display mainly numerical information, usually incorporating graphical devices such as charts and graphs.
EPMS develops Enterprise Performance Management (EPM) software that is mainly used to manage processes in the Finance Department.
Confusion between BI and EPM
The term BI originated around 1997. Software industry pundits like to think that every software category with a new acronym is leading edge, but about ten years earlier, vendors had created products with similar functionality and called them Executive Information Systems. Since then, the technology has changed but both the business need and the end user experience are still the same.
In the current software lexicon, Business Intelligence is often confused with EPM. BI is better known than EPM, which is a term that originated around 2001 to encapsulate many analytical software applications including not only aspects of BI but also financial applications such as Planning, Reporting and Consolidation.
Different industry thought leaders started changing the definitions of these terms so that over time BI and EPM were regarded as different software categories that interrelated and later some analysts considered EPM to be a component of BI (this view is especially prevalent in Europe). This all means that discussions about BI and EPM can be very confusing.
EPMS views Enterprise Performance Management and Business Intelligence as being different categories of software. This differentiation may at first sight appear to be unimportant, but the many products available have different costs and capabilities. An understanding of the market for ‘data viewing‘ software helps an organisation choose a solution that is appropriate for its need and that will be a worthwhile investment.
One of the biggest misconceptions is that, if two products are capable of displaying the same data in the same format, then these products are in the same category of software. This is not necessarily the case; in terms of the successful uptake of an application used to display data, the way a user navigates to see the data he or she needs is as important, if not more so, as the actual data on the screen.
Both BI and EPM software can be used to view information using a user interface that includes charts and graphs. The terms can be confused because some of the components of EPM software, especially software that is used to display strategic information such as Key Performance Indicators, can display data in a way that is similar to the functionality of ‘true BI’ products. This common ‘data viewing’ functionality gives rise to obvious questions such as What is the difference between BI and EPM? and Which of them does my company need?
What is EPM?
EPMS follows the ‘formal’ definition, which states that EPM consists of the following five types of software application:
1. Budgeting, Planning and Forecasting software
2. Software used for Financial, Statutory and Management Reporting
3. Applications used for formal Financial Consolidation
4. Software used for Profitability Modelling and Optimisation
5. Strategy Management software
Most of these are clearly distinct from BI software, but when Strategic Metrics and Key Performance Indicators (KPIs) are displayed by an EPM application the end result can look similar to BI.
What is BI?
Business Intelligence is one of the software industry acronyms that has multiple definitions depending on which vendor is doing the defining. However, software products that claim to be in the BI space are usually designed to give users access to data in an unstructured interface. To understand the difference between BI and EPM, it is important to realise that the user experience defines the nature of a ‘data viewing’ application.
The user experience
This is often called the application’s Graphical User Interface (GUI). As far as GUIs for data viewing applications are concerned, there is a continuum from unstructured (where the software is highly flexible and gives users the ability to modify greatly what they see) to structured (where users view screens that are pre-defined and cannot be changed to any great extent). Both of these approaches have their pros and cons.
Unstructured products are true Business Intelligence products that have functionality built in to enable users to create their own queries and navigate in their own way to find the data they need. This type of software is likely to include components such as:
• Accessing data over the Internet with an easy-to-use interface.
• Displaying data both numerically and graphically.
• Assuming a structure for data as a basis for data navigation and so that it can be automatically subtotalled.
• Drilling down not only on numerically displayed data but also on graphically displayed data.
• Pivoting displays so that rows and columns in a table can be swapped.
• Sorting the information being displayed and using this as a basis for selecting data.
• Saving views of data so they can be displayed later.
There are many BI products of this type. If there is an existing suitable data source, they usually require minimal implementation and enable users to view information immediately. However, there are risks associated with these products; users may need training in order to derive the full benefits from a product of this type and so ease of use is very important. Other considerations include the difficulty of creating a suitable data source and the ease and quality of printed output; some products that are web-based have limited printing capabilities and are really designed to be online viewers of information.
Unstructured BI is becoming a commodity, which is reflected by the proliferation of such products and by the fact that Microsoft is offering functionality of this type in Microsoft Office (with Excel 2010) and in Microsoft SharePoint. For a company wishing to experiment with this type of unstructured BI, Excel is an excellent and relatively cost effective alternative.
Structured applications for viewing data usually address a specific need. ‘Structured’ means that not only are users limited to the functionality built into the solution but they also benefit from being guided by the solution to see what is important (i.e. what the organisation wants them to see). They are often marketed as performing functions such as ‘ Scorecards’ and thus are considered EPM applications and not part of BI. However, because they display data graphically they are often erroneously called Business Intelligence. It is important to understand this distinction.
These products are often associated with one or more management paradigms such as Balanced Scorecard or Six Sigma and are used for display of more strategic data, usually called Key Performance Indicators (KPIs). By definition, a structured solution limits users to viewing certain data. The big question is What data?, and to answer this question usually involves choosing KPIs that are the most relevant metrics for users to view. Therefore, as well as simply displaying data (including non-numeric data, such as a detailed explanation of why a KPI is important), most of these structured applications also do a lot more. This can include methodologies for the selection and definition of a company’s strategic KPIs, defining the relationships between KPIs, and enabling algorithms to be defined for reporting on aggregated KPIs.
Other examples of off-the-shelf structured applications are dashboards (which simply display KPIs using devices such as gauges, as on a car dashboard) and scorecards. Scorecards are essentially variance reporting where variances are color coded based on rules that need to be pre-defined and is sometimes called Red and Green (RAG) analysis. Scorecarding can also include exception reporting, where exceptional variances are identified and displayed. Historically, these products have also been expensive to buy and implement, but the market is changing and products are becoming more affordable. Both dashboarding and scorecarding tend to bridge the gap between structured and unstructured BI, but the need to pre-define which data appears as gauges or what the rules are for color coding means that some structure is implied. When implementing a strategic application, it may not be obvious what data to make accessible to users. To help choose appropriate KPIs, many large companies use the services of an outside consultant (who may have experience on a vertical market or in the capabilities of a specific software product) to help decide which strategic, forward-looking KPIs are most relevant to the organisation; for a mid-sized company, this can be a major expense. The choice of KPI will naturally change over time (once one organisational problem is fixed, it may no longer be relevant) and so senior management needs to constantly revisit which KPIs are important. The risk is that if a system displays the wrong information then the application becomes irrelevant, people stop using it, and confidence in management declines.
Structured data viewing applications can be expensive. The costs associated with any multi-user software solution consist of acquisition costs (for software licenses and implementation services) and ongoing maintenance (principally services). Structured systems tend to be significantly more expensive than unstructured BI in both these areas. In this case, a structured solution requires a high level of commitment, especially for mid-sized companies where resources may be limited.
Structured solutions can be either off-the-shelf or custom built. The former has historically been sold mainly to large companies (primarily because of the strategic nature of these applications) and this type of software may be expensive to buy and implement.
Custom built solutions are obviously expensive to implement. With a custom built system, anything is possible but many mid-sized companies find the costs prohibitive. When embarking on a custom solution, many companies neglect to consider the ongoing maintenance costs; if application functionality, operating systems or technology change there can be significant future implementation expenses. Custom solutions can be built using a number of tools (such as Microsoft SQL Server Reporting Services) that are bringing down the costs of this type of application.
Structured data viewing applications are often assumed to be strategic in nature, but this is not necessarily the case - they can be operational or strategic. If a structured application is regarded as operational rather than strategic, the choice of what to display may be more obvious. For example, a company can build a structured BI application that displays production information in a shop floor environment. This information will change daily or hourly and is used to communicate to staff the progress that is being made with operational tasks.
One problem with strategic EPM applications is that the data is sometimes not very granular. Financial data or metrics such as headcounts are often available only monthly; users will naturally use the system only when they know new data is available and if this is just once a month, there can be problems with user acceptance. Embarking on a strategic project usually requires commitment from an executive sponsor who realises the associated value. To be successful, it needs a long-term commitment from the company so that it becomes part of the corporate culture; often, if the executive sponsor moves to a different job, the BI project either is axed immediately or it dies a slow death.
Structured solutions can be either off-the-shelf or custom built. The former has historically been sold mainly to large companies (primarily because of the strategic nature of these applications) and this type of software may be expensive to buy and implement.
Custom built solutions are obviously expensive to implement. With a custom built system, anything is possible but many mid-sized companies find the costs prohibitive. When embarking on a custom solution, many companies neglect to consider the ongoing maintenance costs; if application functionality, operating systems or technology change there can be significant future implementation expenses. Custom solutions can be built using a number of tools (such as Microsoft SQL Server Reporting Services) that are bringing down the costs of this type of application.
Structured data viewing applications are often assumed to be strategic in nature, but this is not necessarily the case - they can be operational or strategic. If a structured application is regarded as operational rather than strategic, the choice of what to display may be more obvious. For example, a company can build a structured BI application that displays production information in a shop floor environment. This information will change daily or hourly and is used to communicate to staff the progress that is being made with operational tasks.
One problem with strategic EPM applications is that the data is sometimes not very granular. Financial data or metrics such as headcounts are often available only monthly; users will naturally use the system only when they know new data is available and if this is just once a month, there can be problems with user acceptance. Embarking on a strategic project usually requires commitment from an executive sponsor who realises the associated value. To be successful, it needs a long-term commitment from the company so that it becomes part of the corporate culture; often, if the executive sponsor moves to a different job, the BI project either is axed immediately or it dies a slow death.